13 Nov 2012

Inflation takes surprise leap to 2.7 per cent

A rise in university tuition fees and soaring food costs are blamed for the shock rise in UK inflation to a five-month high of 2.7 per cent.

The UK’s rate of inflation, which indicates the cost of living, rose to 2.7 per cent in October, up from 2.2 per cent the month before.

The Office for National Statistics (ONS) said this was the largest recorded rise in more than a year.

The biggest factor behind the surprise hike was the government’s decision to lift the tuition fees cap to £9,000, from £3,375 a year ago. This meant that education costs jumped by 19.1 per cent last month – the largest increase since records began.

The rise of food prices was also behind the rise in the consumer prices index (CPI) after record wet weather earlier this year left the UK with its worst potato and carrot harvest in living memory, which pushed up vegetable prices, according to the ONS. Confectionery was also to blame: some companies have changed the shape of their products meaning that consumers get less for the same amount of money.

Read more: Why are food prices on the rise?

Futher rise ahead?

The rate of inflation was higher than predicted by economists, and follows a very low rate in September, the lowest for three years.

However there are fears the cost of living will continue to rise as the raft of recent energy bill hikes also start to come into effect.

The ONS said last month’s bill increase by the energy company SSE – which saw tariffs rise by around 9 per cent – were not taken into account for the October figures, and other utility firms are increasing prices from this month onwards.

Inflation remains far lower than its peak of 5.2 per cent last September. But the Treasury said today’s figures were “disappointing”.

Bank of England report

The Bank of England can implement measures to try and keep the inflation rate at 2 per cent. But raising interest rates, which is thought to keep prices low, is considered a high risk strategy in a recession.

Economist Samuel Tombs, of Capital Economics, said the inflation data provides an “uncomfortable backdrop” to the Bank of England’s quarterly inflation report due out on Wednesday. “Nonetheless, we still think that the weakness of economic activity will bring inflation down further in time,” he added.

However James Knightley, an economist at ING Bank, said he expected inflation to rise to 3 per cent by January.

Tuesday’s figures also showed that the Retail Prices Index (RPI), which includes housing costs, rose to 3.2 per cent in October from 2.6 per cent in September as mortgage rates also increased. The RPI rise between September and October was the largest monthly increase for two and a half years.